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Carbon Farming Initiative Review

The Climate Change Authority released its review of the Carbon Farming Initiative on 22 December 2014.

The Authority finds that Carbon Farming Initiative has achieved some real emissions reductions, but participation has been lower than it might have been. The scheme has reduced emissions by about 10 million tonnes and environmental integrity has been reasonably high. However, policy uncertainty led to low price expectations for credits and a lack of confidence in longer-term returns, which deterred participation. Participation was also affected by gaps in coverage and relatively high transaction costs.

The Emissions Reduction Fund makes some important improvements on the CFI and these should reduce costs and increase participation. Fixed price contracts are likely to be attractive for many project proponents. Also, the new approach to method development and approval appears to be an improvement and streamlining is likely to result in lower transaction costs.

The expansion and streamlining of the Emissions Reduction Fund also introduces some new or expanded risks. Rapidly expanding the scale and scope of the Emissions Reduction Fund brings significant risks, especially to ‘additionality’. Good governance arrangements will be critical. The Authority recommends that enhanced additionality tests be considered for individual projects that generate a large volume of credits; and that the ongoing appropriateness of the ERF for achieving emissions reductions in particular situations be subject to independent and periodic review.

Based on its current configuration and funding, the Authority considers that the Emissions Reduction Fund is unlikely to deliver sufficient emissions reductions to reach Australia’s minimum 2020 target of 5 per cent below 2000 levels. A range of complementary actions will be required, now and beyond 2020.

The Carbon Farming Initiative (CFI) is part of the Commonwealth Government’s response to climate change. It is a national, voluntary scheme that provides incentives for activities that reduce or avoid greenhouse gas emissions.

The CFI, introduced in 2011, was originally intended to provide offsets for businesses with liabilities under the carbon pricing mechanism. The carbon pricing mechanism was subsequently repealed in July 2014. The government is expanding and streamlining the CFI to form the Emissions Reduction Fund (ERF), the central element of its Direct Action Plan to reduce Australia's greenhouse gas emissions.

The Review has drawn on other review and policy processes, including a study published by the Authority earlier this year (see below) and the government’s Emissions Reduction Fund White Paper.

CFI Review—Issues Paper

CFI Study

The Climate Change Authority released a research paper in April 2014, investigating the experiences of Australian and international baseline and credit schemes, and highlighting key lessons for the development of the government’s Emissions Reduction Fund. This work has been drawn on for the Authority’s CFI Review.